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Impending Superannuation Changes

On the eve of the new financial year let’s take a look back on some of the key Superannuation Changes that will begin to affect people from 1st of July 2017. In some cases, you’ll need to take action well before then.

Here’s a quick rundown of the four biggest Superannuation Changes starting on the 1st of July 2017 and some hints about whom it may affect.

1. The amount of super that can be moved into a pension has been limited

The superannuation pension must be the best tax structure in all of Australia, no matter your wealth, any income or earnings within your superannuation pension fund are taxed at…. 0%. Which is why a superannuation pension fund is so desirable and the government wants you to fill up your pension funds, but not too much. The Pension Transfer Balance Cap as it has been called, commences on the 1st of July 2017 and will limit the amount that individuals can transfer over their lifetime from their superannuation fund into a pension fund to only $1.6m.

This is a new rule entirely and there was previously no limit at all to the amount that you could transfer into a superannuation pension. From the 1st of July anyone who commences pensions with a balance in excess of $1.6m will be hit with penalties on their excessive portion. It’s important to keep in mind that this isn’t a limit on how much you can have in superannuation generally, or how large your superannuation pension fund can grow due to earnings, it’s only a limit on the amount transferred into the pension phase.

HINTS for these Superannuation Changes

It’s a limit imposed per person, not per superannuation pension fund, so if you have two pension funds that exceed $1.6m when combined this affects you.

This is RETROSPECTIVE if you already have pension fund balances but they exceed $1.6m, you haven’t been spared, it will affect you too! You’ll be required to reduce your pension funds to fit within the caps by 1 July 2017.

If you have a defined benefit or fixed income stream and a regular pension fund, this may impact you too. The government will assign your defined benefit income stream with a lump sum value and may push you over the limit.

2. Reduction in superannuation contribution caps

As happens every few years the limit to how much we can contribute to superannuation gets adjusted. This year, no surprises here, it’s a reduction. For people over 50, the reduction is significant.

Contribution

Age or member

Current rules

Rates from

1 July 2017

Before-tax

Under 50

$30,000 p/a

$25,000 p/a

Before-tax

50 or over*

$35,000 p/a

$25,000 p/a

After-tax

Under age 65*

$180,000 p/a OR

up to $540,000

under the bring-

forward rules

$100,000 p/a OR

up to $300,000

under the bring-

forward rules

After-tax

65 of over

$180,000 p/a

$100,000 p/a

* at anytime during this financial year

Before tax contributions include any employer contributions made on your behalf, any salary sacrifice contributions you have arranged and any personal deductible contributions you’ve made.

Hints for these Superannuation Changes

Look out if you’ve been salary sacrificing, particularly if you’re over 50, your current arrangements may leave you contributing too much and land you in hot water next year.

Those planning to make large contributions prior to retiring have had their ability to do that reduced. The message for the government is clear, make consistent regular contributions as the days of being able to get large lumps sums contributed in one hit are gone!

3. The ability for everyone to make Personal Deductible contributions (before tax contributions)

This is one of the few victories from last year’s budget. Previously if you were an employee and wanted to make a tax deductible contribution to your super fund, you had to arrange with your employer to salary sacrifice through the year and only if they permitted it. From the 1st of July you’ll be able to transfer funds, as a lump sum, directly from your personal bank account into your super fund and claim a tax deduction. This was previously only available to self-employed people but will now allow employees far greater flexibility in how they contribute to super.

Hints for these Superannuation Changes

If your employer doesn’t permit salary sacrifice contributions you will now be able to make additional contributions

If you were previously making salary sacrifice contributions, you might consider instead making a single personal deductible contribution

4. Transition to Retirement Pensions now taxed at 15%

A transition to retirement pension allows an individual to begin accessing their super monies in the final few years of their working life to offset any potential reduction in working hours and help them 'Transition to Retirement' rather than simply retiring. All of the income and earnings that occurred within the new pension fund were then also taxed at 0% making it an especially powerful tool as the income within a standard super fund is taxed at 15%. However from the 1st of July 2017 any Transition to Retirement pension funds will now be taxed at 15%.

Hints:

If you are already running a transition to retirement pension, it should be reviewed to ensure that, without the 15% tax advantage the strategy is still a worthwhile exercise.

If you feel that any of the above Superannuation Changes may affect you, contact us today.

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